Fossil Fuels AEI report, "Oil and the Debt."

Published on September 25th, 2013 | by Tina Casey


Gadzooks! AEI Hates On Oil, Agrees With Obama About Everything!

September 25th, 2013 by  

File this one under Even A Broken Clock Is Right Twice A Day. The American Enterprise Institute, which has never exactly been BFFs with alternative fuels and electric vehicles, is promoting a new report that blames oil dependency for dragging down the national economy. The report goes on to position President Obama’s alternative fuel, electric vehicle, and fuel efficiency policies as economically rational responses to transition the US out of reliance on the volatile global oil market.

When we last checked in on AEI, the conservative think tank was calling subsidies for electric vehicles a “devil’s bargain” and promoting a book based on the claim that the installed cost of solar energy has jumped up since 2001 when it has actually tumbled down, so we’re not endorsing AEI’s methodology or its conclusions. We’re just interested in, well, why are they hating on oil all of a sudden?

The AEI Petroleum Dependency Report

Sparingly titled “Oil and the Debt,” the focus of the report is on making the case against the “drill, baby, drill” approach to federal energy policy. The critical factor is that the report covers oil dependency, period, not just dependency on imported oil.

AEI report, "Oil and the Debt."

EV charging station (cropped) by MR38.

Before we jump into the report, keep in mind that while the title refers to the national debt, the text refers to federal deficits. That’s a bit confusing but our good friends at the Treasury Department Bureau of the Public Debt suggest that if you think of the debt as accumulated deficits, you’re on the right track.

Here’s the money quote:

…the negative impacts of high and volatile oil prices for households, businesses, and public agencies would remain largely unaddressed by an energy strategy focused strictly on increasing domestic oil production. For example, while increased domestic supply would put some downward pressure on oil prices, the changes would likely be small, because oil prices are determined in a global market.

If that sounds familiar, it’s the same economic rationale underlying President Obama’s energy initiatives: the petroleum market is global.

The report also engages in a nifty bit of water-carrying for the President’s global warming and public health policies by noting that “petroleum is both more carbon-intensive and poses a greater risk to local environments than many alternative energy sources.”

To cap it off, the report refers supportively to  another analysis that positions “a transfer of wealth to oil exporters” as one of three key ways in which dependency on the global petroleum market imposes costs on the US economy, along with a “deadweight” loss of GDP from higher prices and losses resulting from disruptive price spikes.

Why Does AEI Hate Oil?

The report is primarily geared toward oil dependency in the transportation sector and it includes a section running down the various alternatives. In other words, it ends up describing and supporting President’s initiatives straight down the line: fuel efficiency, biofuels, electrification, and natural gas. Especially natural gas.

That last item is where you might find a hint about why AEI would promote a report that shoots down petroleum. Although ExxonMobil is among AEI’s major funders, you’ll also find the industrialist Koch brothers deeply embedded in the mix, and it seems to us that the Koch brothers have been busily hedging their bets when it comes to natural gas and climate science.

Come to think of it, ExxonMobil is no slouch when it comes to shale gas, either.

Given that President Obama is still strongly supportive of natural gas as a cleaner fuel (though we politely disagree, to say the least), we’re guessing that’s why AEI has suddenly become such a total fanboy of his energy policies, even if the report never mentions him by name.

What’s your guess?

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[correction: an earlier version of this post stated that AEI “issued” the report]

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About the Author

specializes in military and corporate sustainability, advanced technology, emerging materials, biofuels, and water and wastewater issues. Tina’s articles are reposted frequently on Reuters, Scientific American, and many other sites. Views expressed are her own. Follow her on Twitter @TinaMCasey and Google+.

  • Doug

    Any think tank worth a dime should be able to come to the same conclusions as the AEI report. The US current account deficit – which is enormous – is causing economic harm to the US. Oil is sucking trillions out of the US economy.

  • Ross

    First page of the report says it was commissioned by “Securing America’s Future Energy” and organisation that looks like it is to the right of Genghis Khan when it comes to dealing with foreigners.

  • Others
    • Bob_Wallace

      Not for long.

      A bit more coal is being burned because NG prices have risen.

      But we’re closing a lot of our coal plants. There will be no place to burn coal.

      Your concern is noted….

      • Michael Berndtson

        Coal plants are mostly being mothballed with existing operating permits in place rather than razed. When gas goes up in price, coal will be revisited and plants restarted or not. Mostly if grandfathered in or not pursuant to air regs. US EPA hasn’t come to terms with existing plants and won’t address the issue until at least 2015.

        Given the ease republicans can use the war on coal as a political strategy, I wouldn’t count coal out just yet.

        Power plant operators kind of like coal more than gas, when comparing fossil fuel feed stock. A coal pile sits outside the plant manager’s office, where the raw material is visible. Gas comes in unseen, underground and subject to several controlling companies from well field operators, transmission or midstream companies, and distributors (typically a gas marketing company separate from transmission and electric utilities). This concern with gas as feed may go away as these entities merge.

        On an environmental impact level I see no benefit with gas when looking at good old fashion air, water and land protection. The impact may be less concentrated than coal, but spread out over a much broader area. For instance, coal comes out of the ground at a local mine. Gas comes out of the ground over an entire region. Impact is impact. Another concern with shale gas is with all the processing waste from radionuclides to mercury – just like coal.

        Natural gas as a climate change fighter is a myth. When you add up all the GHG potential: wellhead, processing, transmission, LNG processing, shipping, expansion, distribution, storage in subsurface rock formation, tankage, leakage, combustion, etc. I truly don’t see much of a benefit. It’s definitely not what EDF and other flacks are saying the benefit is.

        • Bob_Wallace

          “Natural gas as a climate change fighter is a myth.”

          You’d be right if we were talking about moving from a 100% coal supply to a 100% natural gas supply – and – doing nothing about methane leaks.

          If we stop methane leaks and do a 1:1 exchange we cut GHG emissions by about 50%.

          If we replace “100% coal” with 50% wind, 30% solar and 20% natural gas we cut GHG by about 80%.

          If we both cut methane leaks and use NG for only 20% coal replacement then we cut GHG by about 90%.

          • Michael Berndtson

            This comment thread is getting kind of skinny – but interesting. Thanks. As of 2013 there’s roughly 300 trillion cubic feet of proven natural gas reserves. We currently burn 24 trillion cubic feet of gas a year for heating, manufacturing and electricity. So there really isn’t a 100 year supply as what’s being sold. For instance the Marcellus was sold as a 400 trillion cubic foot play. The actual proven reserve is now at 31 trillion cf. All this information is on the Energy Information Administration website. My point is that we don’t have as much domestic gas so we’ll have to import a lot if we switch over to a natural gas economy. All the imports will be high carbon footprint LNG.

            Gas being produced also has a hidden carbon footprint and that the natural gas liquids. Some plays are we like the Bakken which produces mostly oil – 35 percent of the gas produced from that field is burned at the field via flaring. Other fields are fairly dry. However, more and more fields coming on line are wetter like the New Albany in Illinois and the Michigan Antrim Shale. The lighter hydrocarbons have a limited market. At this point that gas liquids are being pumped up to Alberta as tar sands bitumen diluent. So all these activities have to be added up when comparing gas to coal. The 50 percent reduction is just the stoichiometry of combustion at electrical generation. Not the entire gas life cycle. It’s a number used by ICF International, NRDC and EDF a lot for some reason.

            You really can’t separate gas from oil and tar sands. And remember oil and gas is the project owner not EDF or NRDC. This switch to a gas economy will require massive amounts of infrastructure costs – and so the bridge has to be at least 30 years long for a return on investment. Tar sands development is expected to tally to a half a trillion in capital outlays alone – not including operating costs.

            Renewables are the awesome thing – but there’s really no need to attach natural gas for power generation to them. Coal with a sunset of 10 years probably makes more sense than switching over to gas for a 30 year life.

            Again, shale gas is a mess from marketing to operations. Development has been nothing but a bamboozlement at the state level and industry itself. Drilling/fracking and operations impacts are becoming obvious – except maybe the Obama administration – who put the ixnay on US EPA oversight at all the troubled sites. That will probably end up being his legacy as much as the 55 gpm goal – which is cool.

          • Bob_Wallace

            We were burning 24 tcf in 2010. Since then we’ve increased our burn rate. NG went from 24% of our electricity supply to over 30%.

            We don’t yet have good storage solutions. Natural gas is a good fill-in for wind and solar.

            We don’t yet have good data to tell us what the real problems might or might not be with fracking. The most recent study I’ve read found that, at least for the wells studied, methane leakage was not a problem.

            “This switch to a gas economy will require massive amounts of infrastructure costs.”

            No, actually the capex for gas plants is quite low. And we already have a lot of NG capacity on line.

            We shouldn’t conflate natural gas, oil and tar sands. They are largely different problems with different solutions.

            The way we get rid of natural gas is with overbuilding renewables and storage. After we get rid of coal.

            The way we get rid of oil, of all types, is by giving people affordable EVs with adequate range and rapid charging along our major travel routes.

          • Michael Berndtson

            An EIA website check: we’re burning 25.5 trillion as of 2012. An increase of about 6 percent from the nominal 24 trillion cubic feet in 2010. I’m going with EIA’s data. You could be with Gazprom or Chesapeake for all I know – and trolling environmental and renewable energy blogs.

            Storage of processed natural gas is re-injection into porous rock below the water table for regulating delivery.

            Fracking environmental data is sparse because of one reason and one reason only – it’s exempt at the federal level. Many states have chosen not to enforce or draft new environmental regulations. Groundwater impacts by fracking are well documented at the local level by those most affected. It’s getting like Love Canal redux out there in the shale oil and gas patch. But this time there’s more O&G and PR douchebags running around.

            Your comment on fugitive emissions kind of sounds EDFy. EDF/UT Austin’s first of 16 study papers kind of reads like something The Heartland Institute would produce, but not as honest.

            Nothing is cheap when it comes to new infrastructure. Transmission piping is probably fine. Distribution is old and will have to be upgraded. Subsurface construction in urban settings is expensive even when done in situ. LNG ports and delivery infrastructure is expensive as hell. This is all new and will cost billions.

            When a shale well produces oil, natural gas liquids something has to be done with the liquid products. Oil and gas companies aren’t going to kill liquids for gas economy or to fight climate change. Like I said there’s way to much capital invested to simply shut tar sands, unconventional and deep offshore simply because a think tank or NGO says so.

            Natural gas sounds great, but to manufacture a clean burning fuel, there a lot of process units the produce a lot of really nasty and hazardous waste.

            My take – regulate the bejeezus out of it and let the chips fall as they may. And tell the environmental NGOs and think tanks to get back to lofty thoughts and let Oil and Gas do their own sales and marketing and policy pushing.

          • Bob_Wallace

            “You could be with Gazprom or Chesapeake for all I know – and trolling environmental and renewable energy blogs.”

            ;o) You got me. I’m a natural gas secret agent.

            Now where’s the firing squad? Do I get a last cigarette? Actually I’d rather have some chocolate, if it’s all the same with you.

          • Bob_Wallace

            “Fracking data is sparse because of one reason and one reason only – it’s exempt at the federal level.”

            No, fracking data is sparse because we’re just now starting to do the research. Right now the first study of water quality – pre-drilling/fracking – is being carried out. For the first time we’ll have a baseline against which to judge what damage is or is not done to groundwater supplies.

            “Groundwater impacts by fracking are well documented at the local level by those most affected.”

            It’s largely anecdotal and not placed in proper context.

            “My take – regulate the bejeezus out of it and let the chips fall as they may.”

            My take – regulate what needs to be regulated but do not let the perfect prevent us from using the good tools we have in hand.

            Movement toward the goal beats the hell out of standing still.

          • Michael Berndtson

            You don’t develop a nationwide unconventional oil and gas extraction business costing hundreds of billions to build out and operate unencumbered for 10 years. Then do a couple of research projects after local citizens get pissed off. Just think if a hazardous waste TSD facility was sited and developed like this – in upper middle and upper class neighborhoods.

            I’m kind of convinced on your background. Maybe not Gazprom, but maybe ICF Kaiser pursuant to contract as authorized by owner – or equivalent.

          • Bob_Wallace

            It’s worst than that. I’m former KGB black ops. I worked under cover as Mr. Rogers until it was necessary to fake my own death.

            How about dropping the jerk-stuff?

  • Steeple

    As Mr. Galbraith famously said, “When the facts change, I change. What do you do, sir?”

    The facts on the efficacy of renewables and the replacement of coal by nat gas are reasonably new developments. How about giving credit to them having the willingness to change as their views as the world changes?

    • Michael Berndtson

      I thought think tanks and not-for-profits were staffed with brilliant minds? Tasked to think new thoughts no one ever thought before – not technical services body shops contracted to push policy and pump investment. These facts have been sitting there like a big piece of steaming poo just waiting to be stepped on for 30 years. A technical staffing company could probably pull together a team of independents for a tenth of the cost AEI pays its associates. Now that’s capitalism. I wonder what AEI thinks about the international services trade deals being discussed? Is there an Chinese AEI equivalent that bills out on average at $65 per hour?

      • Bob_Wallace

        “I thought think tanks and not-for-profits were staffed with brilliant minds?”

        Well, that’s a mistake. Many think tanks are simply set up to create “facts” and spread disinformation.

        There are some excellent ones, and some miserable dogs….

  • Michael Berndtson

    Oh, oh, let me guess. Obama, Moniz, environmental not for profits like EDF, regular old not for profits like the Rockefeller Brothers, the occasional billionaire are super into the natural gas economy. This isn’t just going to take a policy paper and fund raiser to implement. LNG plants require equipment and materials from manufacturers who want to get paid within 60 days. Even a valve compatible for high pressure and low temperature costs around $2,500 a pop. And that giant LNG processing ship that’s being touted as an offshore regulatory workaround has to cost around $5 billion plus per vessel.

    I’m guessing AEI got the memo for an all hands on deck meeting to corral investors to fund capital projects.

    So the domestic natural gas gets boosted in price based on new markets for transportation and power generation. Jobs get created. Chesapeake doesn’t go bankrupt. Politicians are happy.

    Finance gets a new commodity and its derivatives to trade so they’re happy.

    As new international gas fields like the Leviathan off of Israel, Cyprus and Lebanon gets into full production we’ll become a customer with an insatiable need for gas to power our lights and UPS and BNSF to power its fleets. So our ally is happy.

    CO2 will continue to belch at an even greater rate, since Canada will be running tar sands down and out from Alberta and coal seam methane will become economical from Illinois. Pet coke just can’t pile up for ever so it’ll get burned in Cambodia.

    Thanks Obama!

  • sault

    Natural gas replacing coal generation only makes sense if several policy changes are implemented:
    1. Any company involved in “Fracking” activities is exempt from the requirements of the Clean Air and Clean Water Acts. Supposedly “free market” organizations like the AEI should support the repeal of these special exemptions, something that Democrats in Congress have tried to get passed several times but to no avail. The government should not be picking winners, especially when these exemptions threaten the health and well being of millions of Americans.
    2. The repeal of these exemptions should be paired with a near-total revamp of our regulatory framework concerning natural gas drilling. The government should be able to know what compounds are being used during drilling. Claiming that this isn’t possible because these drilling fluids are prorpietary is utterly ridiculous. The government handles TONS of proprietary information and other juicy tidbits all the time! Additionally, a lot more scrutiny should be given to drilling operations. Best practices to control methane leaks and groundwater contamination should be mandatory and it should be a lot harder for wastewater trucks to just dump their loads in a backwoods creek in the middle of the night. And groundwater around fracking operations whould be monitored, with swift penalties and stiff fines levied against companies that spread contamination.
    3. A modest carbon tax needs to be levied at the wellhead, mine, or import terminal to stop polluters from offloading the costs of climate change onto the rest of us and future generations while they laugh all the way to the bank with the profits from selling an artificially cheap product. Starting at $20 a ton, it would raise about $120B annually. We could use the vast majority of these funds to reduce payroll taxes and use the rest to fund efficiency and clean energy. Payroll taxes are somewhat regressive, so reducing them in tandem with the carbon tax would counter the regressivity in a carbon tax if it is crafted carefully.
    If these policies are put in place, natural gas could prove useful in shutting down the coal industry and greatly diminishing their political influence. A steadily rising carbon tax and rapidly-falling renewable energy prices would ensure that natural gas is a “bridge fuel”, and that this “bridge” is a short one and not a plank that takes us to nowhere.

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